Builder: Strip Appeal Could Kill Clock Lofts

The developer of the Clock Shop Lofts told a judge his $38 million-plus renovation of an historic Mill River factory has a 50 – 50 chance of falling apart if a strip club doesn’t move out within a year.

Reed Community Partners (RCP) Director of Historic Redevelopment and Government Affairs Josh Blevins offered that testimony in state housing court on Thursday as to the delicate, complex, time-sensitive balance of funding sources that RCP has put together to convert a derelict former clock factory at 133 Hamilton St. into 130 affordable apartments and artist lofts.

Blevins offered that testimony in support of his company’s bid to have Superior Court Judge John Cordani immediately hand over full possession of the property to RCP despite Scores strip club’s recent appeal of its own court-ordered eviction.

Scores is the last remaining tenant in the 130,000 square-foot Hamilton Street property, which was bought in June 2018 by Taom Heritage New Haven LLC, a holding company owned by the Portland, Oregon-based developer RCP. RCP is cleaning up pollution on the property in advance of turning the comlex into affordable artist-geared apartments.

“This building has languished for decades because other folks interested in the building couldn’t put the funding sources together” to finance the necessary environmental remediation and construction, Blevins said as he gave the 50 – 50 estimate about RCP’s own funding sources remaining viable if the project were to be delayed for a year or more by the appeal.

Taom’s lawyer Jay Lawlor put the matter more bluntly.

“There’s a very strong chance that this project dies if this stay remains in effect during the pendency of the appeal,” he said.

Thursday marked the fourth time the strip club eviction lawsuit has been heard in court since Taom initially filed the summary process suit in August 2018 against Fuun House Productions LLC, the holding company that owns the local Scores outlet and that is owned by Peter Forchetti.

Cordani ruled in favor of the landlord on Feb. 14 after a marathon, half-day hearing earlier this year in which Forchetti and his lawyer, local attorney Anthony DiCrosta, argued that Scores should not be evicted primarily because of an undocumented oral extension to its lease made by the brother of the former owner of the factory. The judge ruled that Scores’s lease had indeed lapsed, and that the strip club had until March 31 to vacate its 12,000 square-foot, 85 Saint John St. premises.

On Feb. 20, DiCrosta filed an appeal of Cordani’s decision. On Feb. 22, Lawlor filed a motion to terminate the stay of execution afforded by the appeal.

So Cordani had two matters before him as both sides reconvened in court on Thursday:

• Whether or not to grant Taom’s motion to terminate the stay of execution, essentially invalidating the appeal and immediately handing the property back to the Clock Shop developers.

• How high to set the appeal bond, or the amount of money that the Scores strip club would have to put aside and ultimately pay to the developers if an appelate judge rules in the latter’s favor.

Buying Time?

Lawlor opened the hearing with an argument for why Cordani should terminate the stay.

Scores filed the appeal in bad faith, he contended: The strip club owner has no interest in, and no chance of, actually winning an appeal. He just wants to stall, dragging out the legal wrangling to stay open a bit longer and to scuttle the developer’s project.

“Their approach in defending this case is … to buy themselves as much time as they possibly can,” he argued.

This defense would ultimately prove to be a ​“pyrrhic victory,” Lawlor said, because the law clearly states that a landlord does not have to honor an undocumented oral extension to a lease made between a tenant and a prior landlord.

Furthermore, he said, this appeal would have a detrimental impact on not just the developer, but on the city and its residents. By holding up the Clock Shop Lofts project, he said, the strip club owner is putting at risk the conversion of a long vacant, environmentally dangerous, historic factory into 130 units of affordable housing.

“That’s all admirable and something everyone wants,” DiCrosta said about the goal of adding more affordable housing units to the city’s housing stock.

But, he said, Scores is not simply trying to stall. Its owner invested in the property assuming that the oral lease he had made with the former landlord’s brother in 2015 was legitimate, and the Portland developers would have known about that concern if they had spoken with Forchetti about their plans to terminate Scores’s lease sooner than they did, he argued.

The judge’s decision deserves an appellate review, he said. ​“It’s not for the purposes of delay.”

“It Dies”

In a motion for use and occupancy payments filed by Scores on March 1, DiCrosta argued that the strip club should pay no more than $8,500 in rent per month over the course of the appeal. In a subsequent objection filed by Taom on March 14, Lawlor argued that the judge should instead set an appeal bond of no less than $2.28 million, considering how much time and money the appeal might cost RCP.

In court on Thursday, DiCrosta tried to convince Cordani that all he needs to rule on in this case is the cost of use and occupancy: that is, how much money Scores should pay in rent each month.

Cordani disagreed: ​“My view is the bond could include something more than use and occupancy.” In particular, the amount could cover damages incurred by the landlord if the appellate judge were to find the appeal spurious.

Lawlor then called Blevins to the stand to provide detailed testimony on exactly how much RCP has spent on the project to date, how much financing it has lined up for the project as a whole, and how the whole project could come crashing down if the appeal drags on and on.

Blevins put the total estimated cost of the Clock Shop Lofts redevelopment project at around $38 million.

“We have put together a plenitude of partners” to make that financing possible, he said.

Currently, he said, his team has hired contractors to perform environmental remediation of radium, PCBs, lead, asbestos, and other lingering contaminants at the former industrial property.

To cover the cost of environmental remediation, he said, RCP has lined up an $800,000 Environmental Protection Agency (EPA) loan as administered by the city, a $400,000 grant directly from the city, a $4 million loan from the state Department of Economic and Community Development (DECD), and a $1 million line of credit with Communities for Change.

For the construction phase of the project, he said, RCP has lined up commitments for tens of millions more in bonds, historic tax credits, affordable housing tax credits, and other lines of credit from the Housing Authority of New Haven, the state Department of Housing, Cedar Rpaids Bank, JP Morgan Chase, and others.

“These are complicated deals,” he said.

They’re rendered further complicated by conditions in some of the environmental remediation financing that the building be vacant of all tenants before RCP can actually tap into that promised pool of money. In particular, Blevins said, RCP can’t access the $1.2 million in combined loans from the city because the city did not want to be seen providing money for a project that still housed a strip club.

That EPA grant expires in September, he said. And if RCP hasn’t tapped into that money by then, it simply goes away.

Every dollar counts, he said, especially for environmental remediation. If the team were to lose that $800,000 EPA grant, he said, he doesn’t know of any other potential funding sources that would make up that lost money. And it’s his job to know what all such sources might be.

“If you can’t make up a funding shortfall,” Lawlor asked, ​“what happens to the project?”

“It dies,” Blevins said.

Blevins said that his company is 80 percent done with the radium clean up, 50 percent done with the PCB clean up, but 0 percent done with clean up of the lead, asbestos, and petroleum. That’s because that particular remediation is funded by sources that RCP hasn’t been able to tap into yet due to the prolonged legal battle with Scores.

He estimated that RCP has spent $5 million on the project to day.

Cordani asked how much he estimates RCP pays per month when taking into consideration all costs, including utilities, property taxes, environmental contractors, and insurance.

“In the neighborhood of $100,000 per month,” Blevins said.

“It Was A Personal Loan To Me”

DiCrosta then questioned Forchetti to draw out exactly how much Forchetti could afford to pay into a prospective appeal bond.

Recalling Forchetti’s soft-spoken, raspy voice from previous court appearances, Cordani advised Forchetti to get speak as loudly as he could in order for the judge and everyone else in the cavernous court room to be able to hear.

Forchetti replied in that same soft, raspy voice that he couldn’t speak too loudly. ​“I’ve had a sore throat for three months,” he said.

DiCrosta asked what impact paying the multi-million-dollar bond suggested by the landlord would have on Scores.

“It would devastate us,” he said. He reminded the court that his company recently filed for Chapter 11 bankruptcy.

Forchetti said he currently employs between 50 and 70 people at Scores, including bartenders, cooks, security, entertainers.

All of those folks would be out of a job if he had to pay a high appeal bond or if Scores closed? DiCrosta asked.

“I would lose it all,” Forchetti replied. Forchetti said he currently owes $480,000 on a loan he got to make improvements to the club in 2015, including to build out a steakhouse.

Lawlor then cross-examined Forchetti.

Didn’t you say you invested $300,000 in the steakhouse in prior testimony? Lawlor asked.

“Three hundred thousand dollars was only for the steakhouse,” he said. The remaining $180,000 went into other various improvements.

What kind of improvements? Lawlor pushed.

“To get it to where we are now,” Forchetti said.

“Who do you owe $480,000 to?” Lawlor asked.

To Patriot Bank, Forchetti replied.

So Patriot Bank is listed as a creditor in Fuun House’s Chapter 11 bankruptcy filing? Lawlor asked.

Well, no, Forchetti said. ​“It was a personal loan to me.”

The nearly two-hour hearing wrapped up at a quarter to 4 p.m.

Cordani thanked the two parties. ​“You can expect a decision shortly,” he promised them.